Auto Trade Groups Question CFPB’s Indirect Lending Guidance

The National Automobile Dealers Association and the National Association of Minority Automobile Dealers have issued a joint statement questioning the Consumer Finance Protection Bureau’s latest guidance on indirect auto lending.

On Thursday, the CFPB released a bulletin on compliance for indirect auto lenders that permits dealers to increase consumer interest rates and compensate them with a share of the increased interest revenues.

The CFPB said it was concerned that the markups may lead to minorities being charged more than white consumers.

“NADA and NAMAD strongly oppose any form of discrimination in auto lending, and the CFPB guidance appropriately explains that unlawful discrimination has no place in the marketplace,” the trade groups said in a statement.

“However, it is relying on a theory of discrimination that is based on a statistical analysis of past transactions – not intentional conduct – and the CFPB has not provided any information about how it is conducting its analysis,” NADA and NAMAD said.

The CFPB said indirect auto lenders should take steps to ensure that they are in compliance with the Equal Credit Opportunity Act and Regulation B including eliminating dealer discretion to mark up buy rates and fairly compensating dealers using another mechanism, such as a flat fee per transaction, that does not result in discrimination.

“An indirect auto lender’s markup and compensation policies may alone be sufficient to trigger liability under the ECOA if the lender regularly participates in a credit decision and its policies result in discrimination. The disparities triggering liability could arise either within a particular dealer’s transactions or across different dealers within the lender’s portfolio,” the CFPB said.

NADA and NAMAD said “the CFPB’s attempt to eliminate the dealer’s ability to discount the APR that it offers to consumers will only weaken the consumer’s ability to secure financing at the lowest possible cost.”

The groups added “this anti-competitive approach is not in the interest of consumers and should not be accomplished through guidance and enforcement actions that lack transparency, the opportunity for public comment, and the benefits of a data-driven analysis into the effects they would have on consumers and the automobile financing marketplace.”

Both auto industry trade groups said the CFPB should work with the Federal Reserve Board and the Federal Trade Commission on those various actions.

NADA said it represents nearly 16,000 new-car and -truck dealers, with 32,500 franchises, both domestic and international. NAMAD, which represents minority-owned dealerships, said of the 19,000 new auto dealerships, less than 1,100 are owned by minorities.